Gradually converting the Alaska Railbelt’s power generation to 80% renewable energy sources by 2040 is feasible, but it would require a substantial investment, according to a report by the National Renewable Energy Laboratory Fairbanks office.
Paul Denholm, an NREL senior research fellow, provided the Alaska House Energy Committee an update last week about the latest data on a study his organization has conducted over the past few years.
“One of the concerns is the cost and existing source of power on the Railbelt,” Denholm said.
Denholm said Gov. Mike Dunleavy’s office commissioned the NREL study with federal grants nearly four years ago to determine whether enough renewable energy resources exist in the state to accomplish an 80% renewable energy portfolio.
“You’ll need to maintain the existing fossil fuel fleet for reliability but the question is can you just use them less,” Denholm said.
About 15% of the Railbelt’s electricity comes from renewable energy projects, most of it generated by hydroelectric sources.
Denholm said the national average electricity rate was 14 cents per kilowatt-hour. Alaskans on the Railbelt paid 23 cents per kilowatt-hour in 2022, though costs varied by region. For Alaskans, it’s an additional $590 per year higher than what Lower 48 residents pay.
Golden Valley Electric Association members in April saw their costs increase to nearly 30 cents per kilowatt-hour due to several factors, including the Cook Inlet natural gas crunch that impacts Southcentral utilities.
“There is concern about the decreasing supply of natural gas in the Cook Inlet and projections by all the utilities that there will be a substantial increase in costs,” Denholm said. “Natural gas provides about two-thirds of the power for the Railbelt.”
Denholm said if natural gas continues to escalate, it could add a combined $75 million to Alaskans’ energy costs by 2029.
GVEA has existing contracts with Southcentral utilities to purchase energy at a set rate, but can also purchase power at a lower cost in case there is an excess amount that can be sent up the Alaska Intertie.
The NREL study assumes that the most cost-effective mix sources assume that 75% of renewable sources will provide electricity by 2040. Denholm said the benefit is to avoid the cost of imported gas into Southcentral and the diesel/oil-fired plants used by GVEA.
Denholm said the possible solution could be long-term contracts with renewable projects, which end up being a 20-year agreement.
Some renewable projects, he added, aren’t a silver bullet or way to completely replace fossil fuel sources.
“The only thing wind and solar can do here in Alaska is offset the need for fuel use,” Denholm said. “It’s not going to offset the need for new generation capacity ... you are going to need thermal and hydro capacity.”
Solar, he said, isn’t as effective compared to California or Arizona; wind projects are more favorable in that regard.
The NREL study provides several scenarios, including nonrenewable energy projects.
NREL isn’t the only entity to study renewable energy integration into the Railbelt over the next 16 years.
A team from the Alaska Center for Energy and Power at the University of Alaska Fairbanks completed a two-year study that outlined various cost scenarios that include the status quo to adoption of wind, solar, hydroelectric and battery storage backups.
The ACEP team released its final report on the first phase of its study in January.
Denholm acknowledged that adding a mix of solar and wind sources to the Railbelt’s grid comes with additional costs, including upgraded transmission assets.
“But when you make those investments, you’re offsetting other costs such as fossil fuel,” Denholm said.
Denholm said his analysis also assumes greater cooperation between the Railbelt’s major utilities, including GVEA, Chugach Electric Association, Homer Electric Association and Homer Electric Association.
“We’re not assuming consolidation, just that utilities are working closely together for the planning and operation of the grid,” Denholm said.
NREL’s study doesn’t assume upgrades to the Railbelt’s existing transmission system, including the Intetie from Anchorage to Fairbanks.
“I think it would be fantastic if the Intertie was upgraded as there would be considerable cost-benefits to it ... but we focused on the more likely near-term upgrade for the Kenai Intertie upgrade,” Denholm said.
Costs to build
Increasing renewable energy generation into the grid means lots of construction over 15 years, which will be costly.
New solar projects, which wouldn’t require additional access roads, would cost 50% more than in the Lower 48; new wind projects could be 85% higher.
Business costs in Alaska, he said, are based on market size and the challenging weather season. Market size, he added, can change over time.
The NREL study estimated building out renewable projects would require $2.9 billion by 2040; but if the approach isn’t taken and the state relies on a “business as usual approach” it could spend $4.2 billion in fuel and associated costs.
“It’s hundreds of millions per year in costs to deploy these renewable projects, but by spending that you are avoiding even more hundreds of millions per year,” Denholm said.
Denholm noted the infusion of federal infrastructure and major tax credits can help offset development costs.
Most major wind and solar projects, he said, would be built by private developers and sign power purchase agreements with utilities. Utilities would pay based on the kilowatt-hour generated by the project.
GVEA, as an example, intends to use the model with a major wind project that it will select as part of its strategic generation plan.
Rep. Tom McKay (R-Anchorage) wasn’t entirely sold on the concept. He said by displacing natural gas sources extracted in Alaska over time, the state loses royalty and tax revenue.
“There is a penalty there for saying if we don’t use in-state natural gas to nearly the largest extent we do now, there’s nothing that goes to the treasury,” McKay said.
Denholm noted the NREL model bases its cost analysis on avoided imported natural gas, not Alaskan-extracted resources.
Other committee members, including Rep. Calvin Schrage (N/A — Anchorage) said he doubts there will be much of a royalty left given some bills being considered.
Schrage added wind projects could benefit the Railbelt long-term. Chugach Electric, he said, highlighted it could have produced 20% of its power needs with wind by now and help avoid a power crunch during a February cold snap.
“We have independent power producers pursuing these projects that believe it’s feasible despite the difficulties,” Schrage said.